Feb. 1 (Bloomberg) -- U.S. university endowments are losing
ground as returns on investment fail to keep pace with school
spending needs, according to Commonfund and the National
Association of College and University Business Officers.

Endowments lost on average 0.3 percent in the year ended
June 30 after gaining 19.2 percent a year earlier, driven by an
11.8 percent slide in international equities, the groups said in
a report released today. More than a third of the schools also
reported receiving less in donations than a year earlier.

Most endowments, which are still recovering from 2009
losses in the wake of the global credit crisis, shrank in size
after accounting for new contributions and transfers to help pay
for university operations, according to the annual study.
Harvard University, the world’s wealthiest school, reported a
4.1 percent drop in its endowment value to $30.4 billion, while
Yale University’s fell less than 1 percent to $19.3 billion,
according to the survey.

“Universities are not back to where they need to be,”
Verne Sedlacek, president and chief executive officer of
Commonfund in Wilton, Connecticut, said at a news conference.
“The challenges are significant.”

International equity markets performed poorly in the year
ended June 30, reflecting the financial turmoil in Europe, fears
of a hard landing in China as economic growth slowed there and
weak returns from many emerging countries, according to the
report. On average, endowments allocated 16 percent of their
portfolios to international equities.

Nacubo and Commonfund gathered data from 831 U.S. colleges
and universities managing $406.1 billion of assets.

Private Equity

The survey found that universities on average increased
their positions in private equity while cutting investments in
hedge funds, which generated a loss of 1.2 percent last year.
The average allocation to all alternative assets increased to 54
percent from 53 percent last year, according to the report.

Yale said in a report last month that it may boost its
hedge fund holdings to 18 percent of its portfolio in the coming
year after cutting them to 14.5 percent last year. Yale, based
in New Haven, Connecticut, posted a 4.7 percent return on its
investment in fiscal 2012.

Harvard, based in Cambridge, Massachusetts, has said it is
seeking to increase its direct investments in international
natural resources such as tree plantations. Harvard lost 0.05
percent on its investments in the year ended in June, compared
with a 21 percent gain in fiscal 2011.

Insufficient Returns

Universities are failing to generate returns sufficient to
cover inflation, fees and the transfers from their endowments to
pay for operating costs, according to Sedlacek, whose company
manages $25 billion in investments, mostly for nonprofit
organizations.

The report also found that decreasing donations are a cause
for concern, with 39 percent of institutions saying they
received less in gifts in fiscal 2012 compared with the previous
year.

The annual average return for endowments over 10 years was
6.2 percent, according to the report. The goal for most of the
institutions is 7.4 percent, Sedlacek said.

In 2009, colleges and universities lost on average about 19
percent on their investments after global credit markets
collapsed. Harvard had a 27 percent loss that year, the worst
performance among the eight schools that make up the Ivy League
in the U.S. northeast.